How do you spell success? Try I-R-S

Feb 26, 2008 10:26 PM

Gaming Insider by Phil Hevener | Nothing spells success like a visit from IRS investigators probing cash flows and revenue streams.

It’s just a thought and may or may not explain last week’s visit by the Internal Revenue Service to the Las Vegas offices of the company that operates a number of the Strip’s most successful nightclubs, including the top-rated Pure at Caesars Palace.

Nightclubs are among the Strip’s newest must-see attractions for deep-pocketed visitors who would not think of making the same effort to get into a showroom. Most showrooms do not generate the excitement they once did.

It’s the best of the clubs that now generate the long lines of affluent young people willing to dig deep just for the chance to get in the door. What does this money add up to and who is getting a share? These are some of the questions that reportedly had the IRS over at the Las Vegas offices of Pure Management.

A local club-goer who has watched the money changing hands said, "I’m not the least bit surprised. This is like 20-25 years ago when the IRS started coming down hard on the dealers making all the big tokes that seldom got reported."

The emphasis on clubs as revenue drivers has received a lot of attention during the last several years at all major companies, including MGM which has outside partners such as Pure running its clubs. 

So why focus so heavily on  them? Is it because they bring in customers with high gambling profiles?

MGM Mirage Chairman Terry Lanni considered the thought for a moment and said, "I think it is more that they have a high spending profile. What they (good club customers) will do is come in on charters or their own aircraft, they’ll stay in the more expensive suites, eat in the more expensive restaurants and shop in the more expensive boutiques … I suspect that their spending shows more of a tendency to cross over into non-gaming interests than it does gaming."

Lanni does not want to discuss the revenues generated by this business, "because we have partners in a  lot of these projects and we would have to agree to (release figures) together, but we do very well."

Another source speculated that the raid at Pure may have been triggered by a desire to dig more deeply into the nature of the big, big revenue streams, to explore them. They are something of a phenomenon in Las Vegas.

Regulator has Macau
in cross-hairs

Gaming Control Board member Randy Sayre spoke to Far East audiences recently, going on at some length about the importance of tough regulations to deter the kind of skimming that has been reported in Macau.

 Does this mean that the Board will crack a metaphorical whip and lean more heavily on the Nevada licensees doing business there, forcing them to do what’s necessary to discourage, skimming, loan-sharking and whatever?

"No it does not," said a Board insider who spoke on the condition he not be identified. "As a Board member, Mr. Sayre can push for whatever he feels is appropriate, but there is no reason to believe the other two members are interested in regulating casinos in Macau or Singapore."

Sayre did not make himself available for comment.

His remarks might have been inspired in part by a recent South China Morning Post story that alleged millions in taxable revenue is being lost to Macau because of agreements about the transfer of money between VIP room operators and the very special players they bring to the casinos.

Packer raises
the ante in U.S.

Australia’s richest man and Crown Limited Chief Executive James Packer has embarked on a course in the kind of networking only a multibillionaire can afford as he adds to his casino empire.

A source familiar with some of the thinking behind Packer’s recent purchases explained, "You cannot really go global as he (Packer) wants to without some careful thought about what you know and what you don’t know. Mr. Packer is smart enough to know what he does not know and he also has cash that he wants to put into investments that will benefit his casino business … He wants to make contacts and guarantee he can be in touch with all the right people as he develops the relationships that could be important going forward."

And so Packer recently spent $172 million on a 2.5 percent stake in Harrah’s and $242 million for 4.9 percent of Station Casinos. These were follow-ups to his $1.8 billion purchase of Cannery Resorts and investments in the Fontainebleau and a 37.5 percent interest in 27 acres of adjacent real estate on the Strip.

This is the kind of alliance building that could also work to the advantage of Harrah’s as it looks to land a casino project on Macau where Packer and Crown have a partnership with Melco Entertainment.